The New Direction of Technological Change in the Global Economy

The direction and rate of technological change in the global economy exhibit contrasting trends. Since the end of the XX century, the rate of technical change measured by productivity growth has been stronger if its direction is more labor-intensive. This puzzling finding can be explained using an interpretative framework that integrates the induced technological change and localized knowledge approaches with the Schumpeterian creative response. It is hypothesized that the globalization of both product and financial markets induces a creative response based on localized knowledge which accounts for the new knowledge- and labor-intensive direction of technological change that is more effective and productivity-enhancing than capital-intensive innovations. Structural equation modeling confirms the hypotheses in 55 countries during the years 1995–2014. We find that human capital is particularly relevant in the OECD countries, while knowledge spillovers matter in the non-OECD countries.